Phoenix Group growth strategy which Standard Life Assurance pension holders should read

The transition programme is about designing and implementing a new operating model, retaining the best from both organisations, delivering the cost benefits of synergies, stated to be £720 million (Image: Getty Images)

Read More

At present there are two independent businesses with different models and ways of calculating capital requirements: One is Phoenix Life and the other is Standard Life Assurance. A process of closer integration is being plotted for the next 1,000 days.

Its new arrangements will be wider interest to the millions of people who now rely on this company for the insurance products and pension provision.

The presentation team to investors in London included chairman Nicholas Lyons; group chief executive, Clive Bannister; Andy Moss, chief executive of Phoenix Life; Susan McInnes, chief executive of Standard Life Assurance, and group director of Open Business; and Jim McConville, the group finance director and director for Scotland.

It was clearly stated that Phoenix has a track record of adding real value to shareholders through its merger and acquisition, which included AXA for £373 million in 2016.

The transition programme is about designing and implementing a new operating model, retaining the best from both organisations, delivering the cost benefits of synergies, stated to be £720 million. The programme also seeks to embed the partnership with Standard Life Aberdeen, the asset investment arm, and deliver services to Standard Life Aberdeen.

“By 2020, the end state operating model will have one UK Lifeco legal entity with two business segments and a separate European business, all on a single internal model,’’ said chairman Nicholas Lyon.

The new operating model will follow five principles; of preserving the Heritage business model; supporting an Open book model; strengthening the platform for future acquisitions; and delivering effective synergies. The fifth principle is to ensure confidence in the group. Heritage products are not actively marketed, while Open products are actively marketed to new and existing customers.

Phoenix will apply a single approach to the management of its £240 billion, which is £125 billion of UK Heritage investment, £91 billion of UK Open investment, and £24 billion of European investment.

The business includes with-profits (30%), unit linked (42%), annuities (22%), protection (6%), as part of the UK Heritage business, while the UK Open business includes the highly lucrative workplace and retail pensions and wrapper products. The European business in Ireland is unit-linked, and international bond, while the Germany business is with-profit and unit linked.

The strategy for expanding this business is through the sale of annuities to the Heritage business, a partnership with Standard Life Aberdeen for the UK Open business. The new operating model will be delivered in three phases over three years, and will involve the enabling functions, the finance and actuarial phase and the customer and technology phases last until 2021.

It was announced that Phoenix have already delivered £400 million of synergies, this was through the combined Standard Life Aberdeen equity hedge and currency implementation. The group is working towards further cost savings, leading to synergies of £720 million.

There will be a harmonisation of risk, human resources, legal, procurement and audit, there will be a single group internal model, a single investment office and an alignment of reporting processes.

Among the management action is to review the investment strategy to optimise returns and fees on the with-profits business, and maximise shareholder value in annuities.

Diligenta will use a single administration platform with an enhanced digital servicing offering for all Phoenix policies, and around two million of legacy-Phoenix policies will be transferred to Diligenta by the end of 2021.

The presentation spoke of the improvement in outcomes for Abbey Life customers since the £933 million Phoenix acquisition in 2016 which led to an improvement to annual statements and retirement packs.

Susan McInnes, who is also group director of Open business, spoke about the strategic partnership with Standard Life Aberdeen. She said the workplace business was 53% of gross revenues, retail pensions 34%, while the wrap was 13%. Workplace includes 16,000 employers with 1.9 million customers in 35,000 schemes. Retail has 700,000 customers, 13,000 new drawdown customers and £2 billion a year from workplace leavers. Wrap products have 100,000 and are number on in the market place.

“The Client Service and Proposition Agreement will develop the Standard Life proposition and deliver growth across our UK Open product range. While Phoenix Group will be responsible for underwriting, administration and product provision, Standard Life Aberdeen will take charge of distribution, marketing, the platform and customer advice.’’

It was pointed out that the risks were mis-selling and the cost of distribution.

The presentation also spoke about the opportunities in Europe with the company preparing for Brexit to ensure a continuation of customer service and operational efficiency.

“Our European business provides a potential platform for future consolidation,’’ said the presentation, pointing out the strong presence in Frankfurt.

The group also emphasized its financial strength with assets under administration stable at £240 billion with Open business net inflows offsetting Heritage business outflows. Eventually, said the presentation, the growth in Open business will offset Heritage business run off.